GBP Forex market boosted by rising rates
- Pound jumps as BOE hikes rates
- Euro steady as ECB news expected
- Wall Street drops after big tech disappointments
The British pound posted strong gains early Thursday, thanks to the Bank of England’s announcement of an interest rate hike. The currency broke through the 1.36 mark on the news against the dollar. The euro gained throughout the week but remained stable as news from the ECB and President Christine Lagarde is expected shortly. Meanwhile, on Wall Street, futures trended lower as markets reeled from steep declines in stock prices yesterday. These were particularly driven by Facebook’s renamed company Meta Platforms and PayPal, both of which fell yesterday.
BOE rate hike wakes up the British pound
The pound was alive early today as the Bank of England announced its decision to hike rates by 25 basis points to 0.50%. In a seemingly close vote, the UK’s Monetary Policy Committee came out in favor of the widely expected rate hike. The currency responded with a push above 1.36 against the dollar before stabilizing.
Policymakers also pledged to take several other steps to remove supports from the economy by the end of 2022 and early 2023. This includes reducing holdings of corporate bonds through non-reinvestment with a target of having no holdings by early 2023. The meeting also shows that the central bank expects inflation to peak over the next year of more than 5% before to drop considerably.
Focus shifts to ECB tone
The ECB must also make its own announcements today. It has already been established by forex trading players around the industry that policy makers in Europe will no longer announce policy changes. They are expected to continue phasing out their own bond purchase program (PEPP) as announced in December. Apart from that, the focus will be on the tone of the ECB President when she addresses inflation.
Forex brokers expect any hawkish sentiment perceived by Christine Lagarde on the issue and hints of possible rate hikes before the end of the year could further boost the euro which has been strong throughout the week. On the other hand, if it believes inflation is near a peak, a dovish outlook could weaken the common currency with the divergence between US and European policy highlighted.
Wall Street strengthens ahead of tough day
The Wall Street futures market pointed down into negative territory early Thursday. This comes despite a strong rebound earlier in the week. Gains were posted for consecutive days across the board as traders began to recover some oversold names.
The move was hit hard yesterday with PayPal and Meta Platforms, formerly Facebook, reporting disappointing earnings calls that saw both names drop more than 20%. These losses appear to have spread to the rest of the market heading into the weekend.